1. WHAT IS GOLD'S ROLE IN TODAY'S FINANCIAL SYSTEM?

In its Balance of Payments and International Investment Position Manual, the IMF (International Monetary Fund) places gold at the top of its asset rankings, as the safest financial asset: “Unlike all other financial assets, gold bullion is not a claim and does not have a corresponding liability. It is considered to be a financial asset because of its role as a means of international payments and store of value...” 

 In his September 2014 article published in the magazine Foreign Affairs, the former Fed chairman Alan Greenspan explained gold’s role as follows: 

“Gold has special properties that no other currency, with the possible exception of silver, can claim. For more than two millennia, gold has had virtually unquestioned acceptance as payment. It has never required the credit guarantee of a third party. No questions are raised when gold or direct claims to gold are offered in payment of an obligation. Today, the acceptance of fiat money -- currency not backed by an asset of intrinsic value -- rests on the credit guarantee of sovereign nations endowed with effective taxing power, a guarantee that in crisis conditions has not always matched the universal acceptability of gold.

If the dollar or any other fiat currency were universally acceptable at all times, central banks would see no need to hold any gold. The fact that they do indicates that such currencies are not a universal substitute. Of the 30 advanced countries that report to the International Monetary Fund, only four hold no gold as part of their reserve balances. If, in the words of the British economist John Maynard Keynes, gold were a “barbarous relic,” central banks around the world would not have so much of an asset whose rate of return, including storage costs, is negative.” 

2. WHAT IS SPECIAL ABOUT GOLD AND WHY DOES IT BELONG IN A PORTFOLIO?

The single most compelling reason for owning physical gold is its liquidity under all market conditions. There is no portfolio attribute that is less appreciated in good times and more valuable in bad ones than liquidity. Physical gold is the only asset in the world that enjoys universal liquidity, without dependence on financial institutions, at transparent prices at all times, regardless of the market and geopolitical conditions. 

3. HOW DOES PHYSICAL GOLD ADD VALUE TO A PORTFOLIO?

Gold bullion has unique properties that can reduce portfolio risk and offer significant upside. Over time, gold prices are not correlated to financial assets but they are highly correlated to confidence in financial assets and institutions - whenever confidence falls, gold prices rise. Also, a gold bullion allocation ensures access to liquidity under any conditions, even when conventional liquidity sources become inaccessible.

Key Takeaways:

  • Gold provides diversification, as its price is not correlated to financial assets.
  • Gold’s value rises whenever confidence in financial assets and institutions falls.
  • Gold bullion is the only liquid asset that does not rely on banks and capital markets.
  • Unlike real estate, art, diamonds, etc., bullion is globally liquid at transparent prices.

4. WHY SHOULD INVESTORS CARE ABOUT GOLD?

We are in the late stage of a 35-year long debt supercycle. The world is in the middle of a currency war; major world economies are mired in unprecedented amounts of debt; and correlation between financial assets is at all time high.

  • Currency wars debase fiat currencies and erode the purchasing power of financial assets.
  • Unlike fiat currencies, gold cannot be debased and maintains purchasing power over the long term.
  • Debt supercycles invariably end in financial crises, defaults and restructurings.
  • Unlike financial claims, gold bars do not default or get restructured.
  • High correlation between financial assets places most investment portfolios into one financial “basket.”
  • Gold provides critically important diversification in times of crisis.

These attributes make gold an ideal safe haven asset that can offer effective wealth protection.

5. WHY NOW?

As the market volatility rises and economy slows down, the risk of another crisis increases. It is time to refresh the main lessons of the 2008 crisis:

  • Financial excesses create systemic risks that endanger financial assets – customers whose holdings became trapped at Lehman, MF Global and Refco suffered severe losses and/or waited for years to recover assets.
  • Extreme systemic risks create extreme opportunities but using financial instruments to profit from such opportunities requires solvent counterparties. In 2008, The Big Short holders were able to get paid only because of the bailouts but post crisis financial reforms now prescribe bail-ins instead of the bailouts.
  • The ability to profit from distressed assets requires unencumbered capital at the very time when most investors lose access to liquidity.

The time to purchase protection and to implement backup plans is before they are needed. Once the risks rise and/or become obvious, the ability to take the necessary steps diminishes greatly and, more often than not, disappears altogether.  

6. WHICH ATTRIBUTES OF GOLD ARE ESPECIALLY VALUABLE NOW?

Based on the lessons of 2008, following are the especially valuable properties of gold:

  • The only feasible hard asset for storing value unexposed to financial institutions.
  • The only fully liquid non-financial asset with universal acceptance on par with the USD.
  • Gold price fluctuates but gold has never been worthless and cannot become impaired.
  • Price is inversely correlated to the confidence in financial assets.

Gold enjoys five additional important attributes. Physical gold is:

  • Portable
  • Fungible
  • Timeless

Has no counterparty risk
...and is virtually indestructible

7. WHAT IS THE TBR OPPORTUNITY?  

The Tocqueville Bullion Reserve (TBR) provides an opportunity to fully capture exposure to the gold price and, at the same time, to capture the utility of physical gold. TBR was designed to minimize the risks of ownership while leveraging the relevant properties (utility) of gold bullion - independence from financial institutions and global liquidity. Using the lessons of 2008, TBR adopted the tried and tested institutional fiduciary and legal framework for asset ownership.

  • TBR offers a full service solution that ensures legal compliance, jurisdictional diversification, liquidity, physical access & deliverability, all within a structure that maximizes flexibility and shields value from systemic risks. 
  • TBR enables the use of gold bullion as a deep out of the money put option on the failure of extreme monetary policies with an asymmetric upside. Unlike financial options, physical gold does not have counterparty risk, does not expire, does not suffer from time decay, has minimal negative carry and would never become worthless.           
  • TBR serves as a hedge against the loss of liquidity and and the loss of purchasing power. Such hedge would be invaluable in the event current monetary policies fail, triggering a loss of confidence in the financial assets and institutions.
  • TBR is a source of uncorrelated liquidity. Being able to meet one’s obligations and having reserves of liquid buying power during times when others lose access to liquidity and become forced sellers has been a proven strategy for not only protecting existing wealth but for creating new wealth.  

8. HOW DOES THE TBR APPROACH DIFFER FROM ALL OTHER SOLUTIONS AND WHY DOES IT MATTER?

Investors own interests in a professionally managed private vehicle that holds only physical gold bullion.

TBR is the only available private solution that has adopted a fiduciary business model and the bankruptcy-remote legal structure used by institutional and high net worth investors. We have chosen this model because it eliminates conflicts, ensures legal compliance, provides independent oversight and offers full transparency into fees, costs and holdings. This approach to managing and safeguarding assets has stood the test of time and provides TBR’s US Limited Partners and Non-US Shareholders with the highest available level of financial controls and legal protections.

All other physical gold ownership vendors are dealers who facilitate trades and broker storage services. Unlike managers, dealers and brokers do not represent customers and do not owe them the same level of duty as managers.  Also, in case of a problem, legal rights of “customers” are usually inferior to those of Limited Partners and Shareholders.  

9. HOW IS THE TBR STRUCTURE DIFFERENT FROM ETf's (EXCHANGE TRADED FUNDS?

TBR uses a private legal structure that is far superior to all public gold-backed Exchange Traded Funds. Unlike ETFs, TBR provides maximum insulation from counterparty risk and allows investors to redeem in cash or in physical gold.

TBR employs no leverage and uses no derivatives.
TBR holds gold bullion in private, secure and fully insured non-bank vaults.
TBR has multiple storage, logistics and trading arrangements in global  jurisdictions with strong legal protections and ready access to bullion markets.
TBR currently uses non-financial vaults in Singapore, Hong Kong, Switzerland and the U.S.A. with other jurisdictions not yet being used allowing investors to tailor geographic diversification of their bullion allocation.
Trade execution is not reliant on the functioning of capital markets, financial intermediaries and counterparties.
Investments in TBR combine the discretion of private vehicles and full compliance with all U.S. regulations.

10. SHOULDN'T I WANT DIRECT OWNERSHIP OF MY GOLD?

“Direct ownership” is only meaningful if one has physical control. Once an asset is held by a third party, legal and financial terms are much more important than the nominal ownership status, which is why institutional and high net worth investors have developed robust legal structures and fiduciary practices that protect their rights over assets placed in the care of managers and custodians.

TBR uses the legal structure and fiduciary controls that incorporate “best practices” developed by the institutional and high net worth investors for safeguarding alternative assets, such as gold.  Also see answer to Q: 12.

11. WHAT KIND OF CONFLICTS EXIST AND HOW DOES TBR AVOID THEM?

TBR managers receive a management fee and all other costs - trading, storage, audit, independent administration, etc. - are billed at cost. As a fiduciary, TBR’s job is to manage the costs with any savings benefiting the clients, without impacting the management fee. This approach eliminates any potential conflicts of interest.

On the other hand, most vendors advertise all-in fees for the storage and gold trading. Since the all-in fees include the vendor’s profit, vendors have incentive to minimize storage, trading, auditing and other costs, which may not be in the client’s best interest. 

12. HOW IS TBR STRUCTURED?

Investors' own private limited partnership interests (US investors) or private shares (non-US investors) in a professionally managed private vehicle that holds only physical gold bullion.

  • TBR uses a Cayman “Master/Feeder” structure whereby US investors invest via a domestic “feeder,” a Delaware Limited Partnership, and foreign investors invest via an offshore “feeder,” a Cayman entity.
  • TBR holds direct legal title to the gold bullion and each investor owns a pro rata pass-through economic interest in TBR’s assets - there are clear, transparent, uncomplicated and well defined collateral relationships and property rights.
  • Mitsubishi United Financial Group through its MUFG Investor Services acts as TBRs administrator, performs independent valuation of the assets, establishes and maintains each investor's capital account and its daily Net Asset Value (“NAV”). MUFG prepares and distributes individual daily and monthly statements that indicate latest NAV and the level of gold holdings, typically over 99% of NAV.
  • TBR bullion holdings are audited at least twice a year by the Inspectorate, a Bureau Veritas company; TBR accounts are audited annually by Grant Thornton. All investors receive copies of the audited financial statements that disclose TBR bullion holdings, liabilities, expenses and contain other customary disclosures.   

13. WHAT ARE THE TOP TEN MOST COMPELLING ADVANTAGES OF THE TBR STRUCTURE?

Insured storage arrangements:

Independent liquidity
Flexibility & adaptability
Professional management
Global AML and KYC compliance; US Tax Compliance with K-1 Filings
Strong legal property rights protections
Choice of storage jurisdictions
No exposure to financial counterparties
Robust internal and external controls
High level of discretion and privacy
Expense sharing

14. WHAT ARE THE OTHER MEANINGFUL ADVANTAGES OF THE TBR STRUCTURE?

  • TBR value is not subject to NAV premiums or discounts to underlying gold price: your subscription or departure will always be priced at the NAV.
  • Investors may choose to redeem in cash or in bullion (collected or delivered) without any fees charged by TBR.
  • Investors can custom-tailor geographic diversification through a global network of secure storage facilities.
  • As fiduciaries, TBR managers leverage their combined extensive experience in managing assets, gold bullion and mitigating systemic risks.
  • Direct subscription and redemption legal framework place you as a pass thru limited partner and owner, resolving the need for an intermediary.
  • Unlike a dealer, broker or vendor, TBR’s manager represents clients’ interests.
  • Institutional-caliber financial controls and reporting (monthly statements, audits, inventory controls, regulatory compliance, K-1s).
  • Competitive fees, institutional trading costs, and economies of scale through sharing of the administration, accounting, compliance and storage expenses.

15. WHAT ARE THE BENEFITS OF ACTIVE, PROFESSIONAL MANAGEMENT?

  • On-going regulatory compliance management - failure to comply with the global AML and KYC regulations, Foreign Assets Tax Compliance Act (FATCA) and the expanded Foreign Bank Account Reporting (FBAR) can lead to heavy fines and potentially severe penalties.
  • Worldwide liquidity options - the manager seeks to continuously improve TBR’s liquidity through active, on-going interaction with gold market participants around the world.
  • Experience and expertise – TBR managers have extensive experience, gained over a range of economic and market conditions, in managing gold investments and risk.
  • Personalized service – unlike ETF sponsors, and online gold ownership services, the manager is accessible to investors.

16. HOW DO I BUY, SELL AND OWN TBR?

  • Investors fill out subscription or redemption forms obtained from TBR and transact by submitting the forms directly to TBR and/or MUFG Investor Services, TBR’s Administrator.
  • Account opening process takes up to 5 days, depending on the completion of the AML and KYC review. For individual investors the review usually takes 1 to 2 days. Once the account is open, the timing is as follows:
  • Investments can be made daily; funds must be received by 11:00 AM EST or EDT of the day before the trade date.
  • Redemptions in cash require 24 hour’s notice; typical settlement time is T+3-5, depending on the storage location.
  • Redemptions in gold require 24 hours’ notice to TBR and additional 24 hours’ notice to the vault, i.e. up to 48 hours (please note that Singapore and HK are 12 hours ahead of NY, which may add 1 day to the process). Bullion can be either picked up at the vault, with prior arrangement, or secure delivery can be arranged, at the investor’s expense.  
  • Executed subscription documents serve as evidence of ownership and should be held by investors in both soft and physical forms.

17. HOW DOES TBR BUY AND SELL GOLD?

  • TBR transacts globally in the over-the-counter bullion markets.
  • TBR sources, moves, stores and sells gold within the recognized gold bullion dealing community. This maintains the chain of custody, ensures legitimacy and documents provenance of the bullion. These measures enhance liquidity and minimize risks.  
  • The manager searches for the most competitive prices - there are no trading commissions or other trading fees charged by the manager

18. WHERE IS THE GOLD HELD?

Storage arrangements:

  • TBR has arrangements for secure insured storage and transportation with Loomis AB and Malca Amit, global vaulting and secure transportation providers with core expertise in handling valuable goods. Both are members of the London Bullion Market Association (LBMA).
  • TBR has arranged access to secure storage facilities located in Switzerland, Hong Kong, Singapore , and U.S.
  • The bullion is held in bailment by the storage providers and is fully allocated to Tocqueville Bullion Reserve.
  • Full value Insurance coverage against all insurable risks is underwritten by Lloyds of London . This insurance is a part of the storage service and TBR holds both "Evidence of Insurance" and "Loss Payee Certificates," which entitle TBR to receive insurance payments directly in case of loss. 

19. HOW DO I KNOW THE GOLD IS SAFE?

TBR has established a strict system of internal and external controls that engages independent fiduciaries to provide reporting, audit and inventory controls:

  • Storage providers perform daily, weekly and monthly inventory checks and instantaneously update their inventory management systems for any changes.
  • TBR’s independent administrator is MUFG Investor Services, the global asset-servicing arm of the $2.4 trillion (in assets) Mitsubishi UFJ Financial Group. MUFG maintains independent real-time access to the storage providers’ inventory reports.
  • MUFG also maintains each investor's capital account and its Net Asset Value (“NAV”). It prepares and distributes individual monthly statements that indicate latest NAV and the level of gold backing, currently over 99%.
  • Inspectorate International Limited, an independent global provider of inventory control services, performs year-end and mid-year surprise inspections and counts of TBR’s bullion.
  • Annual audits are performed by Grant Thornton, one of the largest global accounting firms.
  • The manager performs on-going monitoring and reconciliation of the inventory reports and performs regular on-site due diligence visits and inventory counts.

20. HOW DOES THE MANAGER GET COMPENSATED?

The manager receives a stated fee, calculated and payable monthly, on the market value of each investor’s capital accounts. Fees depend on the account size and are disclosed in the offering documents. There are no hidden fees, beyond the management fee. [1] 

21. WHAT OTHER EXPENSES DOES TBR BEAR AND WHO IS PAID FOR THE SERVICES?

TBR pays for the trading and operating expenses and for the services such as secure bullion storage and transportation, independent administration, audit, independent inventory verification, legal, etc. These services are provided by the firms unrelated to TBR or the manager and are billed to TBR at cost. Part of the Manager’s mandate is to manage service providers and seek to optimize TBR’s expenses, i.e. seek to obtain the best value for the money. [1]

22. THERE IS AN EARLY REDEMPTION FEE WHICH STARTS AT 3% AND DECLINES TO ZERO (1% PER QUARTER) OVER THREE QUARTERS. WHAT IS THE PURPOSE OF THIS FEE AND WHO RECEIVES IT?

  • Frequent trading of physical assets is relatively expensive because of the higher execution, handling and transportation costs. The early redemption fee is meant to discourage short-term investors and to compensate TBR and the manager for excessive transaction costs.
  • TBR investors are allocated 67% of all early redemption fees. The remainder is allocated to the manager as compensation for the extra costs of handling short-term investors. [1]

23. I ALREADY OWN PHYSICAL GOLD. CAN I CONTRIBUTE MY BULLION TO TBR?

  • The manager has discretion to accept contributions in gold rather than cash. Bullion contributions must be in acceptable gold units and are subject to the manager’s ability to authenticate or assay the bullion and deliver it to TBR’s secure facilities.
  • The extent of the bullion authentication process would depend on the bullion’s provenance, documentation and the chain of custody since the original purchase.
  • Any authentication, assaying and transportation expenses related to in-kind contributions are the responsibility of the contributing investor.

24. CAN I REDEEM MY TBR INTEREST IN PHYSICAL GOLD RATHER THAN CASH? ARE THERE ANY FEES FOR SUCH REDEMPTIONS?

Redemptions can be made in cash or in bullion without any fees payable to TBR. Redeeming investors are only responsible for the delivery charges and third-party expenses, if any. For example, redemptions in bullion would be made in multiples of the gold units held by TBR and any remainder in cash. If one prefers smaller units, the manager would endeavor to exchange TBR’s units by paying the dealer’s premium differential between the larger and smaller units. Such third-party expense would be borne by the redeeming investor. [1]

25. CAN TBR ACCEPT IRA, ROTH IRA OR OTHER TAX DEFERRED PLANS?

Yes, TBR can accept contributions from the self directed pension and IRA plans. Please contact us and we would be happy to discuss your specific situation.

[1] For full information, please refer to the TBR offering documents.

 

Neither the information, nor any opinion contained in this message constitutes a solicitation or offer by TERA Management and/or Tocqueville Bullion Reserve L.P. or any affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. Any data included in this communication is obtained from sources believed to be reliable but cannot be guaranteed by TERA Management and/or Tocqueville Bullion Reserve L.P. Any opinions expressed herein are those of the TERA Management and/or Tocqueville Bullion Reserve L.P. and cannot be solely relied upon as representations.

+1 212 792 2170 |  investors@bullionreserve.com